23 May 2013~ Good Morning Singapore!
Central Execution Team - The Excellence of Execution
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Global Flash: While You Were Sleeping
Source: Marketwatch
Quote for the day :You can't put a limit on anything. The more you dream, the farther you get. - MICHAEL PHELPS
Singapore: The Day AheadSINGAPORE DAYBOOK:DBS reluctant to settle for a minority stake. Bank hopes central bank talks will clear way for takeover of Danamon [SINGAPORE] DBS Group Holdings may not settle for the minority stake it has been offered in Indonesia's Bank Danamon. It hopes that talks between the central banks of Indonesia and Singapore will clear the way for a majority takeover. Pending these, it may ask for an extension from seller Temasek Holdings.
On Tuesday, Bank Indonesia (BI) said it will approve a maximum 40 per cent sale of Bank Danamon, the country's sixth largest bank with some 3,000 branches, and approval for a larger stake may for DBS depends on Indonesian banks getting wider access to Singapore's banking market.
On April 2 last year, DBS had proposed buying over from parent Temasek Holdings its 67.4 per cent stake in Danamon, and the rest from the market - a deal worth $9.1 billion.
Sources say that Temasek and DBS still want to pursue that path. DBS is "very reluctant" to buy minority stakes, chief executive officer Piyush Gupta said on May 2.
(Source: The Business Times)
MARKET SCOOP
Chinavision to place 60m warrants at 1 HK ct each
Singapore Shipping Corp Q4 profit falls 43%
S'pore earnings seen improving in H2: Citi
DBS-Danamon decision may temper Indonesian bank M&A: Fitch
S'pore banks' rally running out of steam: Macquarie
Temasek raises stake in ICBC to 7.04%
Temasek buys major stake in Markit
Jason Marine's FY13 net profit falls 62.8%
(Source: The Business Times)
UBS Securities says...
DBS GROUP HOLDINGS | NEUTRAL | TP: S$18.50
According to newswires (Reuters) Indonesia's Central Bank has approved the acquisition of just a 40% stake in Danamon by DBS
The group had previously wanted to take a full 99% holding via acquisition of Fullerton's 67% stake followed by a mandatory tender offer for the remaining shares
This ruling clearly falls well short of that goal
DBS may well be disappointed
For DBS to increase its holding beyond 40% Bank Indonesia has made clear that it needs to see reciprocity from MAS allowing its 3 state banks (BRI, Bank Mandiri & BNI) to operate more freely in Singapore
We assume this means full QFB licenses, the power to grant these is beyond the control of DBS management
It is not clear to us that MAS would be willing to waive the significant capital usually required to support these full banking licenses for the 3 Indonesian banks
DBS has previously stated that it views minority stakes in other banks as generally unattractive
Other than the smaller retained economic benefit for DBS shareholders of any synergies achieved, a 40% holding would also potentially be a big drag on Basel III regulatory capital ratios
Without a clear, undisputable path to control within a sensible timeframe, we think DBS may need to reconsider its options
Our DCF derived TP for DBS is S$18.5 (CoE 10%, LT growth of 3.5%)
NOMURA Securities says ...
KEPPEL-REIT | REDUCE | TP:S$1.34
KEP announced on 21 May that it is placing out 180mn units in KREIT at SGD1.555/unit, which will further reduce its direct stake in KREIT to c.5.2% from c.29% at the start of 2013 (following the earlier placement and distribution in specie)
KREIT's free float, on the other hand, will increase to c.48% from just c.24% at the start of 2013
While KEP's sale of its direct holdings in KREIT is in line with the group's strategy of concentrating the property business under KPLD, which still owns c.46.3% of KREIT, it is perhaps also true that the current share price is perceived as a good level to take profits on most of its holdings
KREIT has outperformed benchmarks across the board YTD and trades at a yield spread of just 3.6pp (vs. its historical mean of 5.4pp and that of office REITs of 4.5pp) as well as P/B of 1.2x (vs. mean +1SD of 1.1x)
While trading liquidity can potentially increase further if KEP were to sell its remaining direct stake in KREIT, the incremental benefit is likely to be much less significant
As we approach FY14F, we believe the market will also focus on any potential acquisition (and its implication on KREIT's balance sheet) as well as a potential decline in distribution as the rental support at OFC runs out, on our numbers
Our TP is raised to SGD1.34 (from SGD1.29) to reflect a higher NAV and FY14F DPU
Our TP implies a potential total return of -11.2% (potential downside of -16.2% + FY13F yield of 5%)
Downgrade on valuation
UOB KAY HIAN says...
SINGAPORE AIRLINES | BUY | TP:S$13.30
Singapore Airlines(SIA) and SilkAir announced a new codeshare agreement with Shenzhen Airlines
The codeshare agreement enables it to double its frequency to two daily flights
Both Shenzhen Airlines and parent Air China , along with SIA are part of Sky Team alliance and we view the latest codeshare agreement as a strategic move which will benefit both parties
For SIA, this is another way of gaining additional air rights as well as over coming slot restrictions at Tier 1 and Tier 2 Chinese airports
SIA's will also be able to tap into Shenzhen's domestic network and high speed rail connectivity and feed traffic towards South East Asia and Australia
This latest codeshare will complement its codeshare Virgin Australia with Singapore serving as a hub between the two nations
The codeshare agreement also underscores SIA's focus towards North Asia, South East Asia and Australia where it faces less competitive pressures compared to the Middle East and Europe
These codeshare formations clearly show a concise strategy for long term growth and SIA's core airline operations does not deserve to be valued at 0.7x book value
At current levels, the market is ascribing 1x P/B for the SIA group, with no value attached to SIA Engineering
For Shenzhen airlines, the focus on codeshare growth reduces the risk of yield erosion and substantial capital investment and contrasts with China Southern's focus on direct capacity expansion
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